Saudi banks will benefit from increased interest rates

Riyad, Saudi Arabia / TEH:  Standard & Poor’s (S&P Global Ratings) Ratings Agency expected Saudi banks to benefit from the expected increase in interest rates from the US Federal Reserve.

And the agency stated in a report, on Tuesday, that the Saudi central bank usually takes similar steps to the Fed because the Saudi riyal is linked to the US dollar.

The agency suggested that the US Federal Reserve will raise interest rates 6 times this year, including the rate hike that the Fed made in March.

It also expected the Fed to raise interest rates by about 5 times in 2023 and 2024, which is a much larger increase than expectations in the base scenario for many Saudi banks.

The report indicated that “these changes will lead to an increase in the profits of Saudi banks due to the structure of their balance sheets… This is based on the assumption that the shift in the yield curve is parallel, and that the balance sheets of banks remain constant.”

And he added, “Secondary effects could arise from the increase in interest rates, from higher financing costs and slower credit growth than expected.”

He stated that for every 100 basis points increase in interest rates, the net income of Saudi banks is likely to rise by 13 percent.

And the profits of Saudi banks listed on the local stock exchange rose during the past year, by 59.6 percent, to 48.73 billion riyals ($13 billion), according to a survey conducted by one of the online magazines , The Eastern Herald.

And the Saudi banks listed on the stock exchange, recorded net profits of 30.53 billion riyals ($ 8.14 billion) in 2020, which witnessed the outbreak of Corona, and resulted in a decline in profits by nearly 24 percent.

The Saudi banking sector includes 10 local banks listed on the local stock exchange after the merger of SABB and Alawwal banks, as well as Samba and Al-Ahly, and branches of 15 foreign banks.